One of the central challenges for cancer therapy is the identification of factors in the tumor microenvironment that increase tumor progression and prevent immune surveillance. One such element associated with breast cancer is stromal fibrosis, a histopathologic criterion for invasive cancer and poor survival. Fibrosis is caused by inflammatory factors and remodeling of the extracellular matrix that elicit an immune tolerant microenvironment. To address the role of fibrosis in tumorigenesis, we developed NeuT/ATTAC transgenic mice expressing a constitutively active NeuT/erbB2 transgene, and an inducible, fat-directed caspase-8 fusion protein, which upon activation results in selective and partial ablation of mammary fat and its replacement with fibrotic tissue. Induction of fibrosis in NeuT/ATTAC mice led to more rapid tumor development and an inflammatory and fibrotic stromal environment. In an effort to explore therapeutic options that could reduce fibrosis and immune tolerance, mice were treated with the oxysterol liver X receptor (LXR) pan agonist, N,N-dimethyl-3-β-hydroxy-cholenamide (DMHCA), an agent known to reduce fibrosis in non-malignant diseases. DMHCA reduced tumor progression, tumor multiplicity and fibrosis, and improved immune surveillance by reducing infiltrating myeloid-derived suppressor cells and increasing CD4 and CD8 effector T cells. These effects were associated with downregulation of an LXR-dependent gene network related to reduced breast cancer survival that included Spp1, S100a9, Anxa1, Mfge8 and Cd14. These findings suggest that the use of DMHCA may be a potentially effective approach to reduce desmoplasia and immune tolerance and increase the efficacy of cancer therapy.